The Tax Lawyerhttp://blogs.forbes.com/robertwood
Sat, 01 Aug 2015 18:40:00 +0000en-UShourly1http://wordpress.org/?v=3.9.2Many IRS Tax Return Due Dates Just Changed, FBARs Toohttp://www.forbes.com/sites/robertwood/2015/08/01/many-irs-tax-return-due-dates-just-changed-fbars-too/
http://www.forbes.com/sites/robertwood/2015/08/01/many-irs-tax-return-due-dates-just-changed-fbars-too/#commentsSat, 01 Aug 2015 18:40:00 +0000http://blogs.forbes.com/robertwood/?p=36004Is your IRS tax return due April 15? Yes, and that date still holds, including the 6 month automatic extension. But many other filing deadlines were just changed by Congress. The due dates for partnership and corporate tax returns were changed, and for those important foreign account FBAR forms, also known as FinCEN Form 114. The changes came in an unlikely vehicle, H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. Starting after December 31, 2015:

Partnership tax returns are due March 15, NOT April 15 as in the past. If your partnership isn’t on a calendar year, the return is due on the 15th day of the third month following the close of your tax year.

C corporation tax returns are due April 15, NOT March 15. For non-calendar years, it is due on the 15th day of the fourth month following the close of the tax year.

S corporation tax returns remain unchanged—they are still due March 15, or the third month following the close of the taxable year;

There are other rules too. C corporations with tax years ending on June 30 will continue to have a due date of September 15 until 2025. For years beginning after 2025, the due date for these returns will be October 15.

The due date for FBARs go from June 30 to April 15. That’s a relief! And now you can even get a six-month extension, just like tax returns. Note that FBARs–also called Form 114 are important. If you had foreign accounts that in the aggregate topped $10,000 at any time during the year, you must file. The penalties are scary, including willful and nonwillful civil penalties, and even criminal sanctions.

In fact, although many tax evasion charges carry the risk of a three year jail sentence, criminal FBAR charges can earn up to a ten year sentence. Even on the civil penalty front, FBARs are nothing to ignore. FinCENnow requires that you file your FBAR, Form 114electronically. Yet starting to report foreign accounts you failed to report in the past can be touchy. Will filing one FBAR prompt questions about whether you had the account in the past and why you didn’t report it?

Since the statute of limitations for civil or criminal violations is generally six years, opening yourself up to that kind of exposure is frightening. Willful civil violations can draw penalties equal to the greater of $100,000 or 50% of the balance in the account for each violation. With six years open, that could more than wipe out your account.

A Florida man was hit with civil penalties equal to 150% of his accounteven though this penalty exceeded his entire offshore account balance. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the IRS amnesty program for offshore accounts a very good–and very certain–deal. You can choose OVDP or streamlineddepending on your facts. Even a 50% penalty applied once can look attractive when you consider the possibility of prosecution or even just higher civil FBAR penalties.

For alerts to future tax articles, follow me on Forbes.com. Email me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/08/01/many-irs-tax-return-due-dates-just-changed-fbars-too/feed/0IRS Audit Period Just Doubled From Three Years To Six Years For Manyhttp://www.forbes.com/sites/robertwood/2015/07/31/irs-audit-period-just-doubled-from-three-years-to-six/
http://www.forbes.com/sites/robertwood/2015/07/31/irs-audit-period-just-doubled-from-three-years-to-six/#commentsFri, 31 Jul 2015 20:55:00 +0000http://blogs.forbes.com/robertwood/?p=35997No one wants to be audited, and knowing how long your tax return can be attacked is important. Most people know that the IRS statute of limitations is usually 3 years. But there are many exceptions that give the IRS 6 years or longer. And one of those six year exceptions just got bigger, way bigger, despite the U.S. Supreme Court.

The three years is doubled to six if you omitted more than 25% of your income. That is called a substantial understatement of income. But for years, the debate has been over what it means to omit more than 25%. The IRS argues it isn’t just gross income we’re talking about.

Example: You sell a piece of property for $3M, claiming that your basis (what you invested in the property) was $1.5M. In fact, your basis was only $500,000. The effect of your basis overstatement was that you paid tax on $1.5M of gain, when you should have paid tax on $2.5M.

The issue came to a head in 2012. The Supreme Court in U.S. v. Home Concrete & Supply, LLCdramatically cut back on IRS reaches into six year territory. The Supreme Court held that overstating your tax basis was not the same as omitting income. The Supreme Court said 3 years was plentyfor the IRS. Some observers thought the Supreme Court might try to find a way to allow the IRS to go for six years. Nope, the High Court stuck to three years.

But Congress just gave the IRS the last laugh. H.R. 3236, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, overrules the Supreme Court. Now, the tax code says: “An understatement of gross income by reason of an overstatement of unrecovered cost or other basis is an omission from gross income.” The change applies to tax returns filed after July 31, 2015. It also applies to previously filed returns that are still open.

Can you shorten the audit period by filing your return early? Normally no, the IRS audit clock starts running on thelaterof your actual filing or the due date. So, if you file in January and your return is due April 15th, the audit clock starts to tick on April 15th. The time periods can be downright frightening in some cases. The IRS has no time limit if you never file a return. For unfiled tax returns, criminal violations or fraud, the IRS can take its time. In most criminal or civil tax cases, though, the practical limit is six years.

Still, some taxpayers can end up in audit purgatory. For example, if you miss some tax forms, the IRS can audit forever, and occasionally they do try to reach back 10 or more years. It’s also doubled if you omitted more than $5,000 of foreign income (say, interest on an overseas account); the IRS can audit up to six years from your original filing. Internationalinformation returns, such as Form 3520 for gifts or inheritance from foreign nationals, or Form 8938 for overseas assets, give the IRS three years from filing those Forms.

If you’ve ever been audited by the IRS, you may think going back three years is bad enough. But once an assessment is made, the IRS collection statute is normally 10 years. Incredibly, in some cases the IRS can go back 30.

For alerts to future tax articles, follow me on Forbes.com. Email me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/07/31/irs-audit-period-just-doubled-from-three-years-to-six/feed/3IRS Offshore Account Penalties Go Up, More Banks Listedhttp://www.forbes.com/sites/robertwood/2015/07/31/irs-offshore-account-penalties-go-up-more-banks-listed/
http://www.forbes.com/sites/robertwood/2015/07/31/irs-offshore-account-penalties-go-up-more-banks-listed/#commentsFri, 31 Jul 2015 12:54:00 +0000http://blogs.forbes.com/robertwood/?p=35875Since July 1, eleven more Swiss banks have entered deferred prosecution agreements with the U.S. government. The subject is tax evasion involving American account holders. Today, banks everywhere want to know if you are compliant with the IRS. Under FATCA, the entire world is lending the IRS a hand. Meanwhile, the IRS has updated its list of the foreign banks where offshore accounts trigger a 50% (rather than 27.5%) penalty based on the highest account balances in the IRS’s long-running Offshore Voluntary Disclosure Program (OVDP).

There will be more additions as more and more Swiss banks conclude their discussions as part of the U.S. settlement. This comes on the heels of many other enforcement efforts, including John Doe summonses issued to FedEx, DHL, UPS, and HSBC relating to Sovereign. For these and many other reasons, disclosure is clearly the best path. The OVDP is still the gold standard with the highest degree of safety. Presently, taxpayers in the 2014 OVDP face a 50% penalty if they had accounts at any of the following:

Outside of these banks, the norm within the OVDP remains 27.5%. That is far better than prosecution or much bigger civil penalties. Some taxpayers can opt for the easier and less costly Streamlined program. This list does not impact the Streamlined programs because you must be non-willful to qualify. All of this is part of the June 2014 improvements to the OVDP, which sparked new interest in cleaning up offshore accounts.

With over 100 Swiss banks taking the DOJ deal and FATCA disclosures increasing, everyone is rooting out Americans with increasing vigilance. Within the OVDP, people who pre-cleared before the various effective dates are generally safe from the higher 50% penalty. As additional banks are added to the list, though, only those who get in under the wire will stay safe. The 50% penalty now applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons.

For those who are not compliant with reportingworldwide income on U.S. tax returns, FBARs and IRS Forms 8938, it is safest to join the OVDP or (in appropriate cases) at least the Streamlined program. The IRS has been clear that “quiet” foreign account disclosures are not enough. Setting aside the potential criminal liabilities, the civil penalties alone are potentially catastrophic outside one of the disclosure programs.

Indeed, although the 50% penalty is high, willful civil violations can draw penalties equal to the greater of $100,000 or 50% of the balance in the account for each violation. A Florida man was hit with civil penalties equal to 150% of his account even though this exceeded his entire offshore account balance. In that sense, even a 50% penalty applied once can look attractive when you consider the possibility of prosecution or even just higher civil FBAR penalties. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good–and very certain–deal.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/07/31/irs-offshore-account-penalties-go-up-more-banks-listed/feed/1Dear IRS Employees: Emails Go To Congress, So Let’s Texthttp://www.forbes.com/sites/robertwood/2015/07/29/dear-irs-employees-emails-go-to-congress-so-lets-text/
http://www.forbes.com/sites/robertwood/2015/07/29/dear-irs-employees-emails-go-to-congress-so-lets-text/#commentsWed, 29 Jul 2015 12:21:00 +0000http://blogs.forbes.com/robertwood/?p=35948For more than two years, President Obama has denied there is an IRS problem, quipping that there isnot a smidgen of corruptionat the IRS. He has long claimed that any missteps were innocent, entirely the fault of bonehead decisions in local offices. On his recent Daily Show appearance, President Obama was at it again:

You’ve got this back office, and they’re going after the Tea Party. Well, it turned out, no, Congress had passed a crummy law that didn’t give people guidance in terms of what it was they were trying to do. They did it poorly and stupidly. The truth of the matter is that there was not some big conspiracy there. They were trying to sort out these conflicting demands. You don’t want all this money pouring through non-for-profits, but you also want to make sure everybody is being treated fairly.”

Yet it is harder and harder to believe. IRS documents have revealed a Lois Lerner email about teaching IRS staffers to understand the potential pitfalls of revealing too much information to Congress. Forget email. Instead, the IRS used a neat instant messaging system that automatically deleted office communications. House Oversight Committee documentation suggests it was used deliberately by IRS officials to evade public scrutiny. The fact that the IRS use instant messaging to hide internal communicationscame out more than a year ago, yet it is still pooh poohed by the administration.

Lois Lerner testifies before the House Oversight and Government Reform Committee March 5, 2014.

Some of the real juice may be in text or instant messages. In 2013, when the IRS targeting scandal was brewing, Ms. Lerner asked an IRS IT specialist if the IRS saved texts? The response was music to Ms. Lerner’s ears. No, they are not automatically saved, was IT’s response. The IT person went on to say that saving them was possible, though, so be careful. “Perfect,” was Ms. Lerner’s reply. And remember all those many millions of dollars of taxpayer money the IRS spent looking?

Yet House Members were recently told by the Inspector General that the IT staff of the IRS said they were never even asked for backup tapes to find Lerner’s emails. Deputy Inspector General Tim Camus said finding the emails was easy. “They were right where you would expect them to be,” he told the Oversight Committee.

She repeatedly refused to testify, yet collects a nice federal pension. Of course, Mr. Koskinen has testified before Congress numerous times. On March 26, 2014, he pledged that the IRS would produce all of Ms. Lerner’s emails. Yet he knew there were big problems, and the ‘facts’ and dates just don’t line up. Mr. Koskinen lamented the lost or destroyed backup tapes. Mr. Koskinen testified he had “confirmed” that all of the tapes were unrecoverable.

In fact, approximately 700 backup tapes had not been erased and contained relevant information. The inspector general said the 700 still-good backup tapes recovered were found within 15 days of the IRS’s informing Congress they were not recoverable! What was so difficult? The inspector general’s staff simply drove to Martinsburg, WV and asked for the tapes. The IRS had never even asked whether the tapes existed. Well, maybe they sent a text.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/07/29/dear-irs-employees-emails-go-to-congress-so-lets-text/feed/38Obama Is Urged To Fire IRS Chief Before Impeachment Loomshttp://www.forbes.com/sites/robertwood/2015/07/29/obama-is-urged-to-fire-irs-chief-before-impeachment-looms/
http://www.forbes.com/sites/robertwood/2015/07/29/obama-is-urged-to-fire-irs-chief-before-impeachment-looms/#commentsWed, 29 Jul 2015 12:13:00 +0000http://blogs.forbes.com/robertwood/?p=35945Republicans have still not gotten to the bottom of the IRS scandal that erupted more than two years ago. Plainly, there is more than a smidgen of bitterness, and finally, the IRS Chief may be feeling the heat. Jason Chaffetz, Chair of the House Committee on Oversight and Government Reform has gathered up 20 Republican members who penned along letter to President Obama. The letter requests the President to remove IRS Commissioner John Koskinen for obstructing the congressional investigation into the IRS’s targeting of conservative groups.

The letter claims that Mr. Koskinen failed to comply with a congressional subpoena, failed to testify truthfully, and failed to preserve and produce up to 24,000 emails relevant to the investigation. The Press Release is worth reading, as is the Committee’s timeline of the IRS scandal. Chairman Jason Chaffetz issued the following statement:

Mr. Koskinen should no longer be the IRS Commissioner. We have asked the President to remove Mr. Koskinen from office.

Mr. Koskinen failed in his duty to preserve and produce documentation to this Committee. The IRS failed to comply with a congressional subpoena. The IRS further failed by making false statements to Congress. We will pursue all constitutional remedies at our disposal, including potential contempt proceedings or perhaps impeachment of Commissioner Koskinen.

Under Mr. Koskinen’s leadership, the IRS failed to properly preserve agency records despite a subpoena and an internal preservation order. Shortly after being sworn into office, Mr. Koskinen was issued a subpoena. This created a legal obligation to preserve materials relevant to the Congressional investigation. However, just one month later, with an awareness that a gap existed in Lois Lerner’s email production, the IRS destroyed back-up tapes. These tapes may have contained the missing emails from the time frame in which she admitted the agency was targeting conservative 501(c)(4) groups.

Not only did this destruction of 24,000 potential emails occur after the materials were under subpoena, but also after the agency’s own Chief Technology Officer (CTO) issued a preservation notice ordering employees not to destroy anything. The CTO later stated he was ‘blown away’ that back-up tapes were destroyed ten months after his preservation notice.

Further, The Treasury Inspector General for Tax Administration’s (TIGTA) June 30, 2015 investigative report confirmed the IRS destroyed documents and misled Congress about the agency’s efforts in complying with congressional subpoenas.

Mr. Koskinen misled Congress and the American people when he appeared before the Oversight Committee in 2014 and asserted he would produce all of Ms. Lerner’s emails. At the time of his testimony, the agency was already aware that gaps existed in Ms. Lerner’s email production due to a hard drive crash. Mr. Koskinen did not make Congress aware of this problem nor did he take sufficient efforts to recover the missing emails. TIGTA’s report confirmed that the IRS failed to even look for the back-up tapes and neglected to look at five of the six sources where emails could have existed.

At best, Commissioner Koskinen was derelict in his duties to preserve agency records. At worst, he and the IRS engaged in an orchestrated plan to hide information from Congress. Given Commissioner Koskinen’s obfuscation and misleading statements to Congress, and the false claims that key evidence was permanently destroyed, the result has been an unnecessarily protracted investigation. More importantly though, the American people will never know all the facts surrounding the agency’s targeting of conservative tax-exempt 501(c)(4) groups. This is an unacceptable outcome and one that demands those responsible be held accountable.”

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/07/29/obama-is-urged-to-fire-irs-chief-before-impeachment-looms/feed/0Should America Tax Churches?http://www.forbes.com/sites/robertwood/2015/07/28/should-america-tax-churches/
http://www.forbes.com/sites/robertwood/2015/07/28/should-america-tax-churches/#commentsTue, 28 Jul 2015 12:43:00 +0000http://blogs.forbes.com/robertwood/?p=35919With all the talk of tax reform, should we tax churches? It is a sensitive topic for Americans, inviting questions about the separation of church and state. Perhaps we can learn from Zimbabwe, where the question is it fair to tax churches is at least being asked. Of course, Zimbabwe’s tax system isn’t exactly a model of fairness or competitiveness, but then neither is ours. It’s wasn’t long ago that our U.S. tax system tanked 94th out of 100, right below Zimbabwe. For now, Zimbabwe’s tax agency explains the tax issues for churches and religious organizations.

In the U.S., it may be worth shaking up conventional wisdom. For generations, churches have been exempt from income taxes. What’s more, all 50 states and the District of Columbia give them a pass on property taxes too. Ever since our founding fathers, it’s hands-off for federal income taxes, property taxes and more. Reexaming the tax exemption afforded churches might be liberating.

We get tax deductions when we donate to churches, and that encourages them to grow bigger and wealthier. Consider debt-ridden and cash strapped Europe, where churches hold enormous assets. The Catholic Church in particular is a treasure trove ripe for the tax collector. Property taxes were seen as an easy opening of the door with big potential benefits. It was former Italian Prime Minister Mario Monti who called for assessing taxes on church properties, which the church started paying in 2013.

Now, it is the current Prime Minister Matteo Renzi who seems to be benefiting. But what about in the U.S.? Churches reap a vast array of tax advantages, including special rules limiting IRS authority to audit a church. And what of the controversial and important classification decision? What constitutes a legitimate church? With church status being so desirable, how does the IRS police it? The term “church” isn’t even defined in the tax code, although the IRS does have a tax guide for churches and religious organizations. The IRS looks for:

Distinct legal existence;

Recognized creed and form of worship;

Definite and distinct ecclesiastical government;

Formal code of doctrine and discipline;

Distinct religious history;

Membership not associated with any other church or denomination;

Organization of ordained ministers;

Ordained ministers selected after completing prescribed study;

Literature of its own;

Established places of worship;

Regular congregations;

Regular religious services;

Sunday schools for religious instruction of the young; and

Schools for preparing its members.

The IRS generally considers all facts and circumstances in assessing whether an organization qualifies. It is part of the tax basics for exempt organizations. But unlike other exempt organizations, a church does not even need to apply for tax exemption. The church can just operate that way and essentially operate that way without the IRS’s explicit blessing. Most churches do as the IRS for exemption, but they are not actually required to.

This may be part of the proof that for a tax-exempt organization, church status is truly the gold standard. And that is one reason the Church of Scientologyfought against the IRS for so long. After many years of sparring with the IRS over whether Scientology was a church, there were numerous lawsuits and eventually the IRS ruled thatScientology was a church. But not everyone was happy. The New York Timesclaimed that the IRS reversed 30 years of precedent to grant Scientology Section 501(c)(3) status.

Will churches get taxed here? In the case of property taxes, it seems possible. Income taxes are another matter and seem beyond the reach of the federal government. For now.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/07/28/should-america-tax-churches/feed/2Report Says IRS Mishandled 24,000 Tax Lien Notices—Just Ask Robert De Nirohttp://www.forbes.com/sites/robertwood/2015/07/27/report-says-irs-mishandled-24000-irs-tax-lien-notices-just-ask-robert-de-niro/
http://www.forbes.com/sites/robertwood/2015/07/27/report-says-irs-mishandled-24000-irs-tax-lien-notices-just-ask-robert-de-niro/#commentsMon, 27 Jul 2015 12:46:00 +0000http://blogs.forbes.com/robertwood/?p=35914IRS tax liens are serious, spoiling your credit, preventing real estate closings, and damaging your reputation. They are usually correct, but not always. And they sometimes are not removed even after you have fully paid off the IRS. These are among the reasons you would be upset if you didn’t know there was an IRS lien filed against you. A newreport, from the Treasury Inspector General for Tax Administration says some lien notices are mishandled.

In fact, the report says an estimated 24,237 taxpayers may have been adversely affected by tax liens where IRS notices went awry, appeal rights weren’t explained, etc. To be fair to the IRS, the report says in most cases the IRS mailed out the lien notices explaining the taxpayer’s appeal rights. IRS employees typically followed the correct procedures when a notice could not be delivered by the post office.

But not always, and some of the numbers are surprising. The report shows that the IRS makes errors on lien notices, even where the taxpayer has a lawyer, accountant or other representative. After all, tax liens are serious and procedure is key. The IRS can file aNotice of Federal Tax Lien only after:

IRS assesses the liability;

IRS sends a Notice and Demand for Payment; and

You fail to fully pay within 10 days.

The IRS files a notice of lien so creditors know. IRS tax liens cover all property, even if acquired after the lien filing. The courts use it to establish priority in bankruptcy proceedings and real estate sales. IRS liens last 10 years, and usually release automatically if IRS has not refiled them. However, you’re better off to get them removed immediately.

Getting the IRS to release a lien usually involves: (1) paying the tax, interest and penalties; or (2) posting a bond guaranteeing payment. Even then, the IRS may take 30 days. State or local government charges to file and release the lien are added to the amount you owe. The IRS explains how to request a release of federal tax lien.

Liens and seizures aren’t the same. The lien just makes sure the IRS eventually gets paid. A seizure involves forced collection so the IRS can sell property and get paid now. Occasionally, even the IRS makes a mistake. It happened to Dionne Warwick, who proved that an IRS tax lien can be wrong. Sometimes, the IRS is right, but some notices have gone astray.

But the noticerevealed that his tax bill was unpaid. As soon as he learned of the tax lien, he had a check for the full amount hand delivered to the IRS. Mr. De Niro’s spokesman Stan Rosenfeld said IRS delinquency notices were sent to an old address. No matter who you are, when bills get to this stage, there are usually penalties and interest, plus the costs and expenses of getting it fixed.

Mr. De Niro’s address problem is all too common, and the expense and hassle can be significant. People move and may not receive errant mail. One way to try to prevent such gaffes is to use consistent addresses with tax filings. Plus, when you do move, file aForm 8822, Change of Addresswith the IRS. Sure, the IRS may figure it out, but why take that risk?

And remember, the longer IRS bills are outstanding, the more you owe. Even worse, by not responding to IRS notices promptly when they arrive, you might lose certain procedural rights. Just about everything in the tax system has a timed response, such as 30 or 90 days. If you don’t receive a notice and miss out on a procedural advantage, you may not be able to make it up later.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/07/27/report-says-irs-mishandled-24000-irs-tax-lien-notices-just-ask-robert-de-niro/feed/6Watchdog Finds Deficient IRS Controls Leave Room For Targetinghttp://www.forbes.com/sites/robertwood/2015/07/24/no-irs-targeting-mr-president-gao-report-says-there-was-still-is/
http://www.forbes.com/sites/robertwood/2015/07/24/no-irs-targeting-mr-president-gao-report-says-there-was-still-is/#commentsFri, 24 Jul 2015 12:45:00 +0000http://blogs.forbes.com/robertwood/?p=35900Should you be audited based on your religion? Your political beliefs? How about which charities you support? Plainly, the answer to all these questions is no. Yet there are still questions how our tax system measures up, especially when it comes to the still-in-the-news topic of exempt organization targeting. In his recent appearance on The Daily Show, President Obama still denies any targeting.

For more than two years, we have seen a long list of excuses with no one taking responsibility. There was no targeting, we were told. Well, if there was, it was organic, like that spontaneous demonstration from an internet video in Benghazi. Any targeting was not directed, it was those rogue IRS employees in Cincinnati who did it entirely on their own.

Besides, emails show there was no directive about targeting. Sorry, it turns out some of our emails are missing. Hey, hard drives crash. We recycle them too. Liberals got targeted too. There’s no smidgen of corruption. Cash bonuses? Those are unrelated. And the latest in the long line of excuses: it was all the Republicans’ fault.

Actually it turns out that the U.S. Government Accountability Office–the GAO–reports that the part of the IRS that reviews tax exemptions is really at risk for targeting activities. The GAO is an independent, nonpartisan agency working for Congress, often called the congressional watchdog. The GAO, headed by the Comptroller General of the United States, investigates how the federal government spends taxpayer dollars.

The mission of this part of the IRS is applying the tax law with integrity and fairness to all. There is an Internal Revenue Manual (IRM) that serves as the IRS’s primary, official source of instructions. Workers at the IRS are only supposed to deviate from it if they have executive management approval.

But it turns out the GAO discovered risks that organizations can be picked for examination in an unfair manner. Getting scrutinized can even be based on an organization’s religious, educational, political, or other views. Does that sound familiar? Perhaps it is a coincidence?

The GAO report gives examples of what it called ‘internal control deficiencies.’ For example, IRS workers could deviate from prescribed IRS procedures for some selection processes without getting the executive management approval that is required. The GAO found that procedures for some processes—such as applying selection criteria to organizations under consideration for review—are not included in the IRM, as required by IRS policy.

As a result, IRS workers are not required to obtain executive management approval to deviate from these procedures. The GAO concludes that this increases the risk of unfair selection of organizations’ returns for examination. The GAO also noted that the management of this part of the IRS–and historically, that would include Lois Lerner–does not consistently monitor selection decisions.

The GAO said the IRS does not consistently monitor examinations and database files to ensure that selection decisions are documented and approved. GAO’s review of examination files found that approval of some selection decisions was not documented, as required by IRS procedures.

The GAO report examined cases where IRS staff initially selected an organization for examination, but ultimately decided not to perform the examination. In 12% to 34% of those cases were missing the indication of management approval of the final decision not to examine, as required in the Internal Revenue Manual. In general, the GAO report also said the IRS management for this part of the IRS has not been sufficiently monitoring its staff and procedures to make sure the required approvals were obtained.

The GAO recommended that the IRS take ten actions to improve selection criteria. GAO wants to see all selection procedures included in the Internal Revenue Manual. That way the IRS executive management will have approval over who gets selected and why. The IRS has already generally agreed with the recommendations.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

“You’ve got this back office, and they’re going after the Tea Party. Well, it turned out, no, Congress had passed a crummy law that didn’t give people guidance in terms of what it was they were trying to do. They did it poorly and stupidly. The truth of the matter is that there was not some big conspiracy there. They were trying to sort out these conflicting demands. You don’t want all this money pouring through non-for- profits, but you also want to make sure everybody is being treated fairly.”

Really, Mr. President? For effect, perhaps he should reprise his testy “not even a smidgen of corruption” remark to Fox News. The President keeps claiming there is no evidence the IRS was used for political targeting. You be the judge:

U.S. President Barack Obama speaks with Jon Stewart, host of The Daily Show with Jon Stewart, during a taping of the show in New York, July 21, 2015. The appearance marks Obama’s third time on the show as President, and seventh overall, with Stewart leaving the program on August 6. (SAUL LOEB/AFP/Getty Images)

In January 2010, the Supreme Court in Citizens United held it unconstitutional to ban free speech by corporations, unions and other organizations.

In August 2010, the IRS distributed a BOLO (Be on the Lookout) list for Tea Party organizations applying for tax exempt status.

On May 10, 2013, during a bar meeting, Ms. Lerner admits targeting, calling it “absolutely incorrect, insensitive, and inappropriate.” Four days later, on May 14, 2013, the Inspector General issued a report confirming targeting.

On March 11, 2014, the Committee on House Oversight and Reform issues a report on Lois Lerner.

On April 7, 2014, IRS Commissioner John Koskinen confirms there are six investigations: four by Congressional committees, one by the DOJ, one by the TIGTA. Over 250 IRS employees spend 100,000 hours, costing taxpayers at least $14 million.

On April 8, 2014, the Committee on House Oversight and Government Reform says it will pursue contempt charges against Ms. Lerner. On May 7, 2014, the House of Representatives holds Ms. Lerner in contempt of Congress.

On June 13, 2014 (Friday the 13th!), the IRS first says it lost Ms. Lerner’s emails from 2009 to 2011. The IRS says hard drives and backups are destroyed, for 6 other IRS employees’ too. The IRS spent $10 million trying to recover them.

On September 22, 2014, Ms. Lerner breaks silence to Politico, says she is the victim.

In November-December 2014, the Inspector General recovers 30,000 backed up Lerner emails.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.

]]>http://www.forbes.com/sites/robertwood/2015/07/23/19-facts-on-irs-targeting-president-obama-cant-blame-on-republicans/feed/12With Offshore Accounts, Fifth Amendment Protections Don’t Applyhttp://www.forbes.com/sites/robertwood/2015/07/22/with-offshore-accounts-fifth-amendment-protections-dont-apply/
http://www.forbes.com/sites/robertwood/2015/07/22/with-offshore-accounts-fifth-amendment-protections-dont-apply/#commentsWed, 22 Jul 2015 12:42:00 +0000http://blogs.forbes.com/robertwood/?p=35865You might think your bank records–especially foreign banks–are personal and confidential. Yet the government can make you hand over your bank records, even if they incriminate you. It turns out not even the Fifth Amendment can protect you. With FATCA, the pace of foreign account disclosures is frantic, and the stakes have never been higher. The IRS still has two programs running—the OVDP and the Streamlined programs—but it is important to get to the IRS before it gets to you.

That lesson is underscored by another bank records case, United States v. Chabot. In this case, the Third Circuit Court of Appeals added its voice to the many courts that have already said you cannot claim Fifth Amendment protection for bank records. When the IRS issued a summons to the Chabots for their bank records, they refused to comply, citing their Fifth Amendment privilege against self-incrimination.

The Chabots argued that producing the records would incriminate them, and that sounds like a pretty good argument. Even so, they lost in district court. And they lost on appeal too. Imagine getting a summons or subpoena to produce your own offshore bank records. The Fifth Amendment says you cannot be forced to incriminate yourself. It turns out there’s an exception for “required records.” The cases are now quite consistent, and consistently in the favor of the IRS and prosecutors. Under the Required Records Doctrine, it doesn’t violate your rights if:

The government’s inquiry is essentially regulatory;

The information is a preserved record of a kind customarily retained; and

The records have taken on public aspects making them analogous to a public document.

The matters unfold something like this. Suppose the IRS and Department of Justice are investigating, trying to determine if you used offshore bank accounts to evade taxes. You get a summons or subpoena demanding records you are required to keep under the Bank Secrecy Act of 1970—that’s the law requiring FBARs. You refuse to comply based on your Constitutional privilege against self-incrimination, since handing over the records clearly would incriminate you.

But the courts have said that the Required Records Doctrine trumps your Fifth Amendment privilege. The government has to establish the three elements of the Required Records Doctrine. But once they do, youhave to hand over the documents no matter how incriminating they are. The Fifth Amendment doesn’t allow you to refuse to produce them.

In sniffing out foreign bank accounts, the IRS and Department of Justice issue John Doe summonses, and indict foreign nationals. The law requiring FBARs gives the government a hook to subpoena a taxpayer suspected of having an undisclosed offshore account. You might assume that you could take the Fifth, since the “act of production” privilege is part of the Fifth Amendment guarantee. That way the government can’t compel you to produce incriminating documents.

Clearly, bank records or FBARs would incriminate you. Nevertheless, the Fifth, Seventh, Ninth, and Eleventh Circuits say the Fifth Amendment provides no protection. The government victories hinge on Shapiro v. United States, holding that you canbe forced to produce “essentially regulatory” records if the conduct was not “inherently criminal” and the records are not purely personal. You might think foreign bank records are such hot buttons that the Fifth Amendment applies. Nope. In one case, lawyers petitioned the U.S. Supreme Court for certiorari, but the Court said no here.

The result is that some people are being forced to produce bank records that will land them in jail despite Fifth Amendment protections. Meanwhile, remember the IRS official, Ms. Lois Lerner? She upset Congress and citizens by invoking her Fifth Amendment right and refusing to testify. Her refusal was viewed as proper, with prosecutors declining to prosecute her for contempt.

For alerts to future tax articles, follow me on Forbes. You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.